oversight

Examination of the Government National Mortgage Association's Financial Statements for the 15-Month Period Ended September 30, 1976

Published by the Government Accountability Office on 1977-08-09.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          DOCUMENT RESUME

03107 - rA22733741
                                                 Association's
Examination of the Government National Mortgage      September 30,
                                              Ended
Financial Statements for the 15-Wonth Period pp. + 5 appendices
1976. FOD-?7-11; B-114828. August 9, 197X. 11
(22 pp.').
                                                           General.
Report to the~ Congress; by lmer B. Staats, Comptroller
                                                 (2800).
Issue Area: Accounting and Financial Reporting
Contact: Field Operations Div.                         (450);
Budget Function: Community and Regional DevelopmentDevelopment
    Communi-y and regional Development: Community
     (451).
Orqanization Concernedi Government National Mortgage
     Association,                                       Currency
congressional Relevance: ouse Committee on Banking,
     and Housing; Congress.
                                                    of 1974 (P.L.
Authority: amergency Home Purchase Assistance Act
     93-449; 88 Stat. 1364).
          The financial statements present fairly the financial
                                                             at
position of the Government National Mortgage Association
                                                  results of  its
September 30, 1976, and June 30, 1975,   and the
                                              position  for  the
operations and the changes in its financial          and standards
periods then ended, in conformity with principles
of accounting prescribed by the Comptroller   General.
                                                     in several
Findings/Conclusions: The Association is involved  building.
programs to stimulate mortgage lending   and home
                                                            for
Through these programs, it: provides special assistanceowned
financing mortgages; manages and liquidates   federally
                                                     and acts as
mortgages; guarantees mortgage-backed securities:
                                              major  activities
trustee for three trusts- The Association's
during fiscal year 1976 wre under the special     assistance
functions tandem plan programs and the mortgage-backed
securities guaranty program. Undler the mortgage-backed   billion
securities guaranty program, the Association had $28.7 billion
in outstanding securities at September   30, 1976--$27.1
on pass-through securities and %1.6 billion on bond-type
securities. The Association does   not receive a direct
appropriation  to  finance its operations, but borrows from the
                                    outstanding  at September 30,
U.S. Treasury instead- The amount
 1976, was $5,907 million. (Author/SC)
        REPORT TO THE CONGRESS

"v .         BY THE CO-MPTROLLER GENERAL
o~-: o.'~vOF    THE UNITED STATES




        Examination Of The Government
        National Mortgage Association's
        Financial Statements For The
        15-Month Period Ended
        September 30, 1976
        Department of Housing and Urban Development

        This report discusses the financial operations
        of the Government National Mortgage Associ-
        ation s special assistance functions, manage-
        ment and liquidating functions, nd mortgage-
        backed securities guaranty program.
        The financial statements present fairly the fi-
        nancial position of the Government National
        Mortgage Association at September 30, 1976,
        and June 30, 1975, and the results of its oper-
        ations and the changes in its financial position
        for the periods then ended, in conformity
        with principles and standards of accounting
        prescribed by the Comptroller General.




        F00-77-11                                          AUGUST 9, 1977
                COMPTROLLIR GENERAL OF THE UNITED IrATTI
                           WAUHINGTON. D.C. ada



B-114828




To the President of the Senate and the
Speaker of the House of Representatives

      This report summarizes the results of our examination
of the financial staterents of the Go',ernment National
Mortgage Association, Lepartment of Housing and Urban
Development, for the 15--month pe .od ended September 30,
1976.

     We made our examination pursuant to the Government
Corporation Control Act (31 U.S.C. 841 (1970 + Supp. V,
1975)).

     We are sending copies of this report to the Director,
Office of Management and Budget; the Secretary of the
Treasury; the Secretary of Housing and Urban Development;
and the President, Government National Mortgage Asociation.




                                 omr'roller Genera
                                of the United States
COMPTROLLER GENERAL'S      EXAMINATION OF THE GOVERNMENT
REPORT TO THE CONGRESS     NATIONAL MORTGAGE ASSOCIATION'S
                           FINANCIAL STATEMENTS FOR THE
                           15-M('NTH PERIOD ENDED
                           SEPTEMBER 0, 1976
                           Department f Housing anid Urban
                             Development
       DIGEST
       OPINION ON FINANCIAL STATEMENTS
       The financial statements (schs. 1 through 3)
       present fairly the financial position of
       the Government National Mortgage Asaociation
       at September 30, 1976, and June 30, 1975,
       and the results of its operations and the
       changes in its financial position for the
       periods then ended, iri conformity with prin-
       ciples and standards of accounting prescribed
       by the Comptroller General.
       OTHER MATTERS
       The Association is involved in several pro-
       grams to stimulate mortgage lending and home
       building. Through these programs it
       -- provides special assistance for financing
          mortgages (see ch. 2),
       -- manages and liquidates federally owned
          mortgages (see ch. 3),
       -- guarantees mortgage-backed securities
          (see ch. 4), and
       -- acts as trustee for three trusts.   (See
          app. I.)
       The Association's major activities during
       fiscal year 1976 were under the special
       assistance functions tandem plan programs
       and the mortgage-backed securities guaranty
       program.


                                                      FOD-77-11

owr    n   be   hn.
Under the mortgage-backed securities guaranty
program, the Association had $28.7 billion
in outstanding securities at September
1976--$27.1 billion on pass-through    30,
                                    securities
and $1.6 billion on bond-type securities.
(See pp. 8 and 9.)
The Association does not eceive a direct
prvritic,; to finance its operations       ap-
rows from the U.S. Treasury instead. but bor-
outstanding at September 30, 1976, was The amount
million. (See p. 1.)                    $5,907




                    ii
                           C o n t   e n t s

                                                        Page
DIGEST

CHAPTER

   1        INTRODUCTION                                     1
   2       SPECIAL ASSISTANCE FUNCTIONS                   3
               Mortgage acti ty                           3
               Operations                                 4
                   Tandem plan programs                   4
                   Foreclosures                           5
   3       MANAGEMENT AND LIQUIDATING FUNCTIONS
                                                         6
               Mortgage activity                         6
               Foreclosures                              6
   4       MORTGAGE-BACKED SECURITIES GUARANTY
             PROGRAM                                     8
               Pass-through securities                   8
               Bond-type securities                      9
   5       SCOPE OF EXAMINATION AND OPINION ON
             FINANCIAL STATEMENTS                       10
               Scope of examination                     10
               Opinion on financial statements          11
FINANCIAL STATEMENTS

Schedule

   1       Statement of financial condition at
             September 30, 1976, and June 30, 1975      14
  2        Statement of income, expense, and retained
             earnings for the fiscal years ended
             September 30, 1976, and June 30, 1975      16
  3        Statement of changes in financial position
             for the fiscal years ended September 30,
             1976, and June 30, 1975                    18
           Notes to the Association's financial
             statements                                 20
 APPENDIX
                                                          Page
       I    Trustee operations
                                                           24
            Schedule

                         Trustee for Government Obli-
                           gations Prticipation Sales
                           Trust
               1         Unaudited statement of finan-
                           cial condition at Septem-
                           ber 30, 1976, and June 30,
                           1975                           26
               2         Unaudited statement of income
                           and expense for the fiscal
                           years ended September 30,
                           !975, and June 30, 1975        28
               3         Unaudited statement of changes
                           in financial position for
                           the fiscal years ended
                           September 30, 1976, and
                           June 30, 1975                  30
                         Notes    the Trust's financial
                           statements                     32
            Principal officials responsible for the
              activities discussed in this report
                                                          33
                             ABBREVIATIONS
FHA         Federal Housing Administration
FNMA        Federal    ational Mortgage Association.
GAO        General Accounting Office
VA         Veterans Administration
                        CHAPTRR 1

                       INTRODUCTION

      The Government National ortgage Association, Department
of Housing and Urban Develupment, is a Government-owned cor-
poration. It was created by the Congress in 1968 with the
division of the Federal National Mortgage Association (FNMA)
into two corporations. As a Government-owned corporation,
the Government National Mortgage Association (li provides
special assistance for financing mortgages, (2) manager and
liquidatep federally owned mortgages, and (3) guarantees
mortgage-backed securities. These activities are discussed
in later chapters of this report. mn   P-sociation also acts
as tustee for three trusts, which i discussed in appendix I.
     FRMA, which inherited the name of the predecessor cor-
poration, is a Government-sponsored, privately owned corpora-
tion engaqed in secondary ortgage activities. Under the
Government National Mortgage Aasociaticn's direction, FNMA
buys and sells mortgages for the Association and manages the
AssOciation'3 mortgage portfoli.o. Before the Emergency Home
Purchaas Assistance Act o 1974, only mortgages insured by
the FPderal Housing Admi .traaicn (FHA) or guaranteed by
the Veterans Jministration (VA) were purchased for the
Association. The Association reimburses FNMA for its serv-
ices according to a service agreement between the two corpor-
ations.
     The Emergency Home Purchase Assistance Act of 1974
(Public Law 93-449, 88 Stat. 1364, approved Oct. 18, 1974)
was enacted to alleviate the national shortage of mortgage
credit. The act expands the Association's mortgage purchase
program by allowing it to purchase conventionally financed
home mortgages, including individual units of condominiums
and cooperatives. The Association is authorized to commit
and spend $17.8 billion for these purchases. Cumulative pur-
chases by the Association, as of September 30, 1976, involve
178,000 housing units valued at $6 billion.
     The Association does not receive a direct appropriation
to finance its operations but instead borrows from the Treas-
ury. The September 30, 1976, balance of notes payable to the
Treasury was $5,907 million--$5,849 million for special as-
sistance functions and $58 million for management and liquid-
ation functions.

     The President of the United States, with the approval
of the Senate, appoints the President of the Association..

                              1
The Secretary of Housing and Urban Development directs the
administration of the Association, determines general operat-
ing policies, and appoints the Vice President and other ex-
ecutive officers. The principal officials of the Association
during fiscal year 1976 are listed in appendix II.




                             2
                            CHAPTER 2

                    SPECIAL ASSISTANCE FUNCTIONS
     The purposes of the Association's special as3istance
functions are (1) to support the financing of housing for
people urnable to obtain acceptable housing under established
home financing programs and (2) to minimize the decline in
home build' q or mortgage lending which helps to stabilize
the home buf-Jing and mortgage markets. The Association
provides this support by establishing a market for selected
types of FHA-insured, VA-guaranteed, or conventional mort-
gages which are insured by private insurers or have out-
standing pri::c!ipal balances which do not exceed 80 percent
of the values of the property securing the mortgages. When
authorized b- the President or the Congress, the Association
buys these mortgages from mortgage lenders thereby providing
them with cast fr relending. The Association then sells the
mortgages to mortgage investors or retains the mortgages in
its portfolio.

MORTGAGE ACTIVITY

     At Septembe; 30, 1976, the Association's special
assistance functions mortgage portfolio was $5,821 million.
The -ost and unamortized discount of this portfolio was
$5, 2 million and $149 million, respectively. About $703
million o these mortgages was assigned to the trusts
administered by the Association as trustee. (See sch. 1.)
The average interest rate for the mortgages in the portfolio,
including those assigned to the trusts, at September 30, 1976,
was 6.06 percent, an increase from 5.62 percent at June 30,
1975. The interest rates for these mortgages range from 1
percent to 9-1/2 percent. The number of mortgages bearing
interest rates of 7-1/2, 8, and 8-1/4 percent increased while
mortgages bearing the other irterest rates decreased. The
number of mortgages in the portfolio at September 30, 1976,
was 151,393--an increase of 19,456 mortgages over fiscal
year 1975. The increase was attributable to mortgage pur-
chases exceeding mortgage sales and other liquidations.

     The mortgage portfolio at eptember 30, 1976, and
June 30, 1975, is shown ir the following table.




                               3
                       Portfolio (note a)        Portfolio (note a)
                       September 30, 1976          June 30, 1975
     Units              Number    Amount          Number   Amount
                                    (millions)             (millions)
FHA single-family      61,165       $     947     70,049    $1,076
VA single-family       39,090             769     48,057       967
Conventional
  single-family        49,658           1,674     12,153        421
PHA multifamily         1480              431      1,678        63
Gross mortgages        151393       $5,821       131L937    $5,227
a/ Includes mortgages assigned to the trusts.
OPERATIONS

     The Association finances its special assistance functions
operations primarily with money borrowed from the Treasury.
At September 30, 1976, notes payable to the Treasury were
$5,849 million--an increase of $494 million over the pre-
vious fiscal year. The average interest rate on these
notes increased in fiscal year 1976 to 7.8 percent from the
previous fiscal year's 7.38 percent. The notes mature on
July 1 of each year from 1978 to 1981.

     In conducting its special assistance functions,
the Associatior incurred a net loss of $796 million for
fiscal year 1976--an increase of $483 million over fiscal
year 1975.   (See sch. 2.) The loss was attributable largely
to (1) the difference between the average interest rate of
7.8 percent paid on money borrowed from the Treasury and
the average interest rate of 6.06 percent earned on mortgages
in the portfolio and (2) the $599 million incurred in
financing tandem plan programs.

Tandem plan programs
     The purpose of tandem plan programs is to enable the
Association to support and stimulate home financing with-
out massive cash outlays needed to make direct mortgage
purchases. These programs provide favorable financing for
multifamily projects and single-family homes.

     The Association issues commitments to mortgage lenders
to purchase mortgages (1) at interest rates below the pre-
vailing FHA, VA, or conventional rates and (2) at favorable




                                4
purchase prices to meet housing and economic stability
goals. To the extent possible, the Association sells the
commitments to the mortgage lenders and pays them the dif-
ference between the commitment price and the prevailing
market price; the Association absorbs the difference as a
subsidy. When it is unable to sell the commitments, theL
Association purchases the mortgages at the commitment
price and sells the mortgages to mortgage investors.
Foreclosures
     The following table shows the number and amount of fore-
closures of the special assistance functions for the fiscal
years indicated. The Association'incurred losses on these
foreclosures of $1.4 million, .02 percent of the fiscal year
1976 portfolio of $5,821 million, and $300,000, .006 percent
of the fiscal year 1975 portfolio of $5,227 million. The
losses represent interest the Association is unable to col-
lect and foreclosure costs not allowed by FHA or VA.

                    Foreclosures (note a)   Foreclosures (note a)
                       Fiscal year 1976       Fiscal year 1975
       Units          Number    Amount        Number    Amount

                               (millions)              (millions)
FHA single-family        658     $ 12            774     $ 12
VA single-family         522       13            273        5
Conventional
  single-family           25        -             -         -
FHA multifamily           97      204            111      208
Gross mortgages        1,302     $229          1,158     $225
a/ Includes mortgages assigned to the trusts.




                                  5
                           CHAPTER 3

               MANAGEMENT AND LIQUIDATING FUNCTIONS

     T!ie Association is responsible for managing and liqui-
dating federally owned mortgages with a minimum adverse ef-
fect cn the home mortgage market and a minimum loss to the
Government. These mortgages were originally owned by the
dissolved Reconstruction Finance Corporation and by the De-
partment of Housing and Urban Development.

MORTGAGE ACTIVITY

     Regular principal repayments, sales of mortgages to ri-
vate investors, and prepayments and foreclosures liquidate
the mortgages. The Association did not purchase any mortgages
under this program during fiscal years 1976 or 1975. In
fiscal year 1976, mortgage liquidations were $13.3 million
and net earnings were $6.8 million. (See schs. 2 and 3.)

     The management and liquidating functions mortgage port-
folio at September 30, 1976, and June 30, 1975, is shown in
the following table.

                    Portfolio (note a)       Portfolio (note a)
                    September 30, 1976          June 30, 1975
  Units              Number   Amount           Number   Amount

                               (millions)               (millions)
FHA single-family     39,885     $226          44,933      $266
VA single-family      17,302       41          23,759        56
FHA multifamily           56       49              58        53
Other                    570        6           1,152         8

Gross mortgages       57,813     $322          69,902      $383

a/ Includes mortgages assigned to the trusts.
FORECLOSURES
     The following table shows the number and amount of fore-
closures for the management and liquidating functions for the
fiscal years indicated. The Association incurred losses on
these foreclosures of $43,000, .01 percent of the fiscal year
1976 portfolio of $322 million, and 111,000, .03 percent of
the fiscal year 1975 portfolio of $333 million. The losses
represent interest the Association is unable to collect and
foreclosure costs not allowed by FHA or VA.
                   Foreclosures (note a)    Foreclosures (note a)
                     Fiscal year 1976         Fiscal year 1975
     Units            Number   Amount           Number   Amount

                               (millions)                (millions)

FHA single-family        176       $1              253       $2
VA single-family          13        -                9        -
FHA multifamily            -                         1        -
Other                      -                -

Gross mortgages          189     · '$              263       $2

a/    Includes mortgages assigned to the trusts.




                                   7
                          CHAPTER 4
        MORTGAGE-BACKED SECURITIES GUARANTY PROGRAM
     The mortgage-backed securities guaranty program channels
new capital into mortgage financing. The Association guaran-
tees, for a fee, mortgage-baked pass-through and bond-type
securities issued to the public by approved issuers. The
securities are backed by pools of mortgages controlled by
the issuers of the securities.

PASS-THROUGH SECURITIES
     Securities on which principal and interest ae paid
monthly to the security owners are designated "fully modified
pass-through." The issuers administer the mortgage pools
backing the securities, collect principal and interest on the
mortgages, and make payments to the security owners.

     If issuers default in making the required monthly pay-
ments, the Association's guarantee provides immediate and
direct payment to security holders of any defaulted payments.
The Association may also make tht payments to the security
holders through the defaulted issuer or through a new issuer
to which the pooled mortgages of the defaulted issuer had been
transferred. The Association considers ts risk minimal since
the pooled mortgages are insured by FHA or guaranteed by VA.
     In fiscal year 1976, four issuers defaulted on their
payments to security holders and their pooled mortgages were
later ransferred to new issuers. The new issuers received
advances from the Association totaling about $872,000 to make
the payments to the security holders and for other expenses
incurred by virtue of the transfers. They were re7uired to
repay the advances if the financial condition of the pooled
mortgages permits. The Association may sustain a loss on a
portion of the advance if any of the pooled mortgages are
placed in foreclosure. The loss represents interest and
other foreclosure costs not allowed by FHA or VA.

     During iscal year 1976, $12.9 billion in securities was
issued, an increase of $7 billion over the previous yea,.
The securities outstanding at September 30, 1976, totaled
$27.1 billion.

     Issuers are required to furnish monthly financial eports
to the Association that include data on their payments of
principal and interest to security holders. The Association
selectively reviews these reports. It also makes selected


                                8
visits to the issuers and to the custodians of mortgage docu-
ments. The purposes of these visits are to (1) review their
records, (2) verify that the mortgage documents are held by
the proper custodian, and (3) provide them with guidance.

BOND-TYPE SECURITIES
     On bond-type securities, interest is paid semiannually
and principal is paid at maturity, which is generally 2 to 25
years after issue. FNMA and the Federal Home Loan Mortgage
Corporation have issued securities of this type. However, in
fiscal year 1976, no securities were issued. Securities out-
standing at September 30, 1976, totaled $1,622 million--a
reduction of $404 million from the previous year.




                               9
                        CHAPTER 5

                SCOPE OF EXAMINATION AND
             OPINION ON FINANCIAL STATEMENTS

SCOPE OF EXAMINATION
     We examined the Association's statement of financial
condition as of September 30, 1976, and its related state-
ments of income, expenses, and retained earnings and changes
in financial position for the 15-month period ended Septembe-
30, 1976. The statements are presented on a combined basis
and separately for the special assistance functions, the
management and liquidating functions, and the mortgage-backed
securities guaranty program.
     We did not examine the financial statements of the Govern-
ment Mortgage Liquidation Trust, the Federal Assets Liquida-
tion Trust, and the Federal Assets Financing Trust. We did,
however, examine the Association's interest as trustor in
these trusts. An explanation of the trust operations; the
trusts' unaudited statement of financial condition as of
September 30, 1976, and June 30, 1975; and the trusts' related
statement of income and expense and a statement of changes
in financial position for the years then ended are in appen-
dix I.

     We made our examination in accordance with generally
accepted auditing standards and included such tests of the
accounting records and such auditing procedures as we con-
sidered necessary in view of the effectiveness of the system
of internal control. We previously made a similar examination
of the financial statements for the year ended June 30, 1975.
     Our examination was conducted at the Association's
office in Washington, D.C. We also observed and tested the
work of the FNMA audit staff in their review of Association
accounts at te FNMA regional office in Dallas, Texas, and
at FNMA's office in Washington, D.C.  In addition, we reslewed
a report of the Federal Home Loan Mortgage Corporation in
Washington, D.C., that pertained to mortgage-backed securi-
ties guaranteed b the Association. We also reviewed and
tested the work ct the Mortgage Corporation's audit staff
in their review cf Association accounts.




                             10
OPINION ON FINANCIAL STATEMENTS

     In our opinion, the accompanying financial statements
(schs. 1 through 3) present fairly the financial position of
the Association at September 30, 1976, and June 30, 1975,
and the results of its operations and the changes in
financial position for the periods then ended, in conformity
with principles and standards of accounting prescribed by
the Comptroller General.




                             11
SCHEDULES




 13
SCHEDULE 1

                    GOVERNMENT NATIONAL MORTGAGE ASSOCIATION

                       STATEMENT OF FINANCIAL CONDITION
                    AT SEPTEMBER 3, 1976, AND JUNE 30, 1975



                                                          Combined
                                                    9/30/76        6/30/75,

                                                       (in thousands)__
    Assets

    Mortgages less unamortized discounts of
      $154,803,284 in 1976 and $153,509,851
      in 1975    (Notes 1 and 2)               $ 5,988,749         $ 5,456,580
    Less mortgages subject to participation
      sales trust                                     962,233         1.110833
         Net mortgages                              5,026,516         4,345,747
    Equity in trusts                                 412,531            413,037
    Accrued interest receivable                       28,791             23,686
    Other -ceivables                                  42,179             11,649
    Claims a&gainst FHA and VA
       (net of allowance for losses)                   13,848            43,587
    Cash                                                1,397            42,543
    Federal securities at cost plus
      accrued interest                                 86,641            41,685
    Deferred charges                                                      l. Q
         Total assets                          $ 5,611,933        $ 4,923,037




   Liabilities
   Accrued interest payable to U.S. reasury    $     108,261      $     167,6E6
   Trust and deposit liabilities (Note 3              84,754             84,860
   Accounts payable                                   30,353             14,456
   Advance for mortgage purchases                    9?8.750

         Total liabilities                         1,222,118            266,983



   Investment of the U.S. Government

   Notes payable to U.S. Treasury               5,907,331             5,412,865
   Retaiiel earliag or (deficit)               (1,569,141)             (799,083)
   Appropriatitns fr Trust Fund
     insufficiencie                                   51595             42272
        Total investment                           4.389.785          4,656.054
        Total liabilitties and investment     $ 5,611,903        $ 4,923,037

  The notes on pp. 20 and 21 are an integral part of this
  schedule.

                                       14
                                                                                                SCHEDULE 1




        Special Assistince                    Management and                    Mortgage-Backed
              Functions              iFuntion
                                          Loa4                  s             Sacuritis e Proeram
       9/30/76        6/33175              9/30/76      6/30/75              9/30/76       6/30/75
                                           (in thousands)




 $ 5,671,896      $ 5,079,699           $ 316,853           $ 376,881        $              $
        7027,            94.697            2594 6               3

     4,969,099        4,275,002             57,417                  70,745
        309,348         312,742            103,183              100,295
         28,463          23,296                328                  390
         14,405           5,106             24,569                5,045           3,205          1,498
         13,406             42,583              442                  1,004
          1,033             42,430              171                     88          193              25
         43,012             15,535              377                    141       43,252         26,009
                        _      5                                _      54_
                                                                       54
$ 5,378,766       $ 4,717,243           $ 186,487           $ 178,262        $ 46,650       $ 27,532




$      107,357    S     165,860        $       904          $        1,807   $              $
        65,961           68,8951            18,793                  16,059
        25,538            9,193              4,781                   5,246             34            17
       998.750

    1,197,605           243,854             24,478                  23,112             34            17




  5,849,1$1           5,334,675             58,190                  38,190
 (1,719,575)           (923,558).          103,819                  96,960       46,616         27,5!.5
        5159                                 -42.212


    4.181fiLL         4.673389             162009               1                466
$ 5,378,766       $ 4,717,243          $ 186,487            $ 178,262        $ 46,650       $ 27,532




                                                       15
SCHEDULE 2

               GOVERNMENT NATIONAL MORTGAGE ASSOCIATION

          STATEMENT OF INCOME, EXPENSE, AND RETAINED EARNINGS
                     FOR THE FISCAL YEARS ENDED
                 SEPTEMBER 30, 1976, AND JUNE 30, 1975


                                                       Combined
                                                 9/30/76        6i30/75

                                                 '__(in      tlmands)-.
 Income

 Interest and discounts on mortgages         $    448,131       $ 194,493
 Fees:
   Mortgage-backed securities                       21,903         11,303
   Commitment and other                             21,396          3,811
   Processing                                        1,286            944
   Purchase and marketing                              709
 Income from investments                             2,996          1,518
 Other                                               1.445          2.237

      Total income                                497,866         214,306




 Interest on notes payable t U.S. Treasury        654,303         312,115
 Tandem plan costs                                598,730         193,132
 Fees:
   Servicing mortgages                              11,744          5,C93
   Processing                                        1,187            699
 Administrative                                     14,358          7,586
 MBS guaranty costs                                  4,846            709
 Provision for possible losses                       1,107            175
 Other                                                  47              9

      Total expense                              1,286,322        524,518


 larnings or (lass) from operations               (788,456)      (310,212)
 GAin or (loss) from trust operations               17991          11966

      Net earnings or (loss)                      (770,454)      (293,246)
 Retained earnings or (deficit) at
   beginning of year                              (799,083)      (501,050)
 Adjistments affecting prior years                     406

 Retained earnings or (deficit) at end
   of year                                   $(1,569,141)       $(799,033)


The notes on pp. 20 and 21 are an integral part of this
schedule.


                                        16
                                                                          SCHEDULE 2




      Special Assistance             Management and             Mortgage-Bacrked
           Functions              Liuidatine Functions         S             ozra
                                                                    .jqjcurite
     9/30!76       6/30/75        9/30/76       L6/30/75      9i0/76        6/i30/75
                                    in thousands)


$     441,511    $ 188,715    $    6,620        $    5,778   $              $

                                                                 21,903         11,303
       21,396        3,811
        1,286          944
          709
                                                                  2,996          1,518
        1.230        2058            215               179
     466,132       195,528         6,835             5,937       24,899         12,821




     649,786       337,601         4,517            4,514
     598,730       198,132

       11,377        4,770           367               323
        1,187          699
       12,368        6,079           798               674        1,192            833
                                                                  4,846            709
        1,069           90            38                85
            7                         40                 9
    1,274,524      5L7,371         5,760             5,605        6,038         1,542

     (808,392)    (321,843)        1,075              352        18,861         11,279
       12.226        8.18S         5,766            3,781
     (796,166)    (313,658)        6,841            4,133        18,861         11,279

    (923,558)     (610,035)       95,950            92,799       27,515         16,236
    __   LQ            185            18                 8          240

$(1,719,576)     $(923,558)   $ 103,819         $ 96,960     $ 45,616      $ 27,515




                                           17
SCHEDULE   3

                    GOVERNMENT NATIONAL MORTGAGE ASSOCIATION

                  STATEMENT OF CHANGES IN FINANCIAL POSITION
                FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1976,
                            AND JUNE 30, 1975




                                                           Combinec
                                                     9/30/76        6/30/75

                                                         (in thousands)
    Funds Provided:

       Income from operations                   $     497,866   $     214,306
       Mortgage liquidations                        7,867,147       1,491,659
       Appropriations for participation
         certificate insufficiencies                    9,323           8,077
       Borrowings from the U.S. Treasury            4,938,511       3,285,830
       Net changes in other assets and
         liabilities                                  964,281           3,399
       Gain from trust operations                      17,992          11,966
       Adjustments applicable to prior year               406             212

               Total funds provided            $ 14,295,526     $ 5,015,449




    Funds Applied:

       Expense of operations                   $    1,286,322   $     524,518
       Mortgages purchased                          8,547,916       3,474,399
       Repayment of borrowings o the
         U.S. Treasury                              4 '"4,045       1,006,300
       Investments at cost plus unmatured
         net earnings                                 17,243           10.232

               Total funds applied             $ 14,295,526     $ 5,015,449




    The notes on pp.        20 and 21 are an integral part of this
    schedule.
                                                                              SCHEDULE 3




     Special Assistance             Management and                Mortgage-Sacked
          Functions              LiquidatinR Functions           Securities Program
    9/30/76       6/30/75        9/30/76       6/30/75           9/30/76    6/30/75

                                      (in thousands)



$     466,132   $     195,528    $     6,835    $    5,958       $ 24,899       $ 12,820
    7,853,819       1,487,571         13,328         4,088
        9,323           8,077
    4,938,511       3,285,830

      986,326          (4,016)       (20,187)       8,461            (1,858)        (1,046)
       12,226           8,185          5,766        3,781
          148             185             18           27               240
$ 14,266,485    $ 4,981,360      $     5,760    $ 22,315         $ 23,281       $ 11,774




$   1,274,524   $     517,371    $    5,760     $   5,605        $   6,038      $    1,542
    8,547,916       3,474,399

    4,444,045         989,590                       16,710

                                      _                _171243                      10,232
$ 14,266,485    $ 4,981,360      $    5,760     $ 22,31S         $ 23,281       $ 11,774




                                          19
      NOTES TO THE ASSOCIATION'S FINANCIAL STATEMENTS

GENERAL

     The combined statements of financial condition, income,
expense, and retained earnings and changes in financial
position exclude the Association's activity as trustee
for the Government obligations participation sales trusts;
data is furnished on the Association's activity as trustee
in appendix I.
NOTE 1:
UNPAID PRINCIPAL OF
MORTGAGE LOANS (sch. 1)

     The amounts reported for mortgage loans, including loans
subject to the participation sales trusts, are at cost based
on unpaid principal less unamortized purchase discount, part-
icipation equities, and deferred andem plan discounts. The
following amounts of unpaid principal are due to the Associ-
ation from the mortgage debtors.

                                     Special         Management and
                                    assistance         liquidating
                   Combined          functions          functions
Grczs mortgage
  portfolio      $6,143,551,920    $5,821,485,034      $322,066,886
Less unamortized
  discount          154,803,284        149,589,104        5L214,180
Mortgages less
  unamortized
  discount       $5,988,748,636    $5,671,895.930     $31lE,85T   6
NOTE 2:
COMMITMENTS TO PURCHASE MORTGAGE
LOANS AT FUTURE DELIVERY DATES (Fch.    1)
     In addition to the mortgage principal presently included
in the accounts, the Association has commitments outstanding
at September 30, 1976, to purchase mortgage principal total-
ing $19,074 million.

NOTE 3:
TRUST AND DEPOSIT
LIABILITIES (sch. 1)

     The balances identified as trust and deposit liabilities
include only the portion of mortgage tax and insurance pay-


                              20
ment deposits held directly by the Association. It is also
responsible for payments by servicing contractors of taxes
and insurance from mortgagors' funds held in escrow in banks
insured by the Federal Deposit Insurance Corporation--
$25,272,134 at September 30, 1976, and $24,325,776 at
June 30, 1975.

NOTE-4:
CONTINGENT- LIABILITY-AS GUARANTOR
OFMORTGAGE-BACKED-SECURITIES

     The Association is contingently liable for about $28.7
billion pursuant to its guaranty of timely payment of princi-
pal and interest to holders of mortgage-backed securities.
These securities are issued by financial organizations and
are based on, and backed by, pools of FHA-insured and VA-
guaranteed mortgage loans.




                             21
APPENDIXES




  23
APPENDIX I                                         APPENDIX I

                    TRUSTEE OPERATIONS
     The Association manages the assets and liabilities
three trusts and guarantees the payment of principal and of
interest on the participation certificates issued by the
trusts. The three trusts are the Government Mortgage Liqui-
dation Trust, the Federal Assets Liquidation Trust, and the
Federal Assets Financing Trust.

     The agencies participating with the
trustors in one or more of the trusts areAssociation as
                                          the (1) Farmers
Home Administration, (2) Department of Health, Education,
and Welfare, (3) Department of Housing and Urban Develop-
ment, (4) Veterans Administration, and (5) Small Business
Adminitration.

     These agencies conveyed title to assets (mortgages and
housing-related debt instruments) to the trusts for which
the Association is trustee. However, the agencies retained
control and administration of these assets. The trustee
issued and sold participation certificates to private and
Government investors. The certificates are backed by these
assets. The last certificate sales were in 1968. The agen-
cies used the proceeds from these sales to reduce funds bor-
rowed from the Treasury and to reduce the use of Government
funds for their programs. Certificates outstanding at
September 30, 1976, totaled $4.1 billion.

     TI. Association, as trustee, receives from the trustor
agencies the principal and interest collected on the assets,
less the agencies' service charges. These funds are used
to pay interest on the participation certificates, pay trust
expenses, and retire participation certificates at maturity.
If these funds are not adequate, the Association requests
additional funds from the trustor agencies. Specific appro-
priations are available to the trustor agencies for payment
of participation sales insufficiencies.

     In the Government Mortgage Liquidation Trust, five
issues of participation certificates, totaling $1.8 billion,
have been sold since the trust was established. The last
issue was sold in 1966. During fiscal year 1976, certifi-
cates totaling $115 million were redeemed. The outstanding
certificate balance was $655 million at September 30, 1976.
The certificates mature at various times through 1981. Col-
lections received during the fiscal year were sufficient to
cover interest due on the certificates.

     In the Federal Assets Liquidation Trust, four issues of
participation certificates, totaling $3.2 billion, have been


                            24
APPENDIX I                                        APPENDIX I

sold since it was established. The last issue was sold in
1968. During fiscal year 1976, no certificate redemptions
were made. The outstanding certificate balance was $1 bil-
lion at September 30, 1976. The certificates mature at
various times through 1987. Because net interest earned on
the assets and cash deposits held for the trustors were less
than the interest expense incurred on the certificates,
additional contributions of $8.4 million were made to the
trust by the trustors.
     In the Federal Assets Financing Trust, four issues of
participation certificates, totaling $4.3 billion, have been
sold since the trust was established. The last issue was
sold in 1968, and the certificates mature at various times
through 1988. Durinq fiscal year 1976, no certificate
redemptions were made. The outstanding certificate balance
was $2.4 billion at September 30, 1976. Because net inter-
est earned on the assets and cash deposits held for the
trustors was less than the interest expense incurred on
the certificates, additional contributions of $42 million
were made to the trust by the trustors.
     We did not examine the following unaudited financial
statements (schs. 1 through 3).




                             25
APPENDIX I

                                 SCHEDULE


                                   UNAUDITED

                   GOVERNMENT NATIONAL MORTGAGE ASSOCIATION

         TRUSTEE FOR GOVERNMENT OBLIGATIONS PARTICIPATION SALES TRUSTS

                       Statement of Financial Condition
                    At September 30, 1976 and June 30, 1975


                                                    Combined Trusts
                                                  9/3Q/76       6/30/75
                                                     (in thousands)

Assets

 Obligations subject to trust:

     Principal                                   $3,101,450   $3,528,956
    Accrued interest receivable - net                27,635       24.872
     Total subject to trust                       3,129,085    3,553,828
Collections due from trustors                        21,926       27,372
Investments at cost plus unmatured
     net earnings                                 1,618,179    1,331,521
Cash                                                  4.544            8
   Total assets                                  $.a7         $612


  Labilities

Participation certificates: (note 1)
    Principal                                    $4,058,255   $4,173,255
    Accrued interest payable                         57.262       77.639
    Total due certificate holders (note 2)        4,115,517    4,250,894
Accounts payable                                         14           25
Trustors' equity                                    65.203       661.810
   Total liabilities                             $   7        $ 7


The notes on p.      32 are an integral        part of this schedule.




                                   26
                                                                           APPENDIX I




     Government Mortgage            Federal Assets                    Federal Assets
      Lauidation Trut              Liauoudation Truat                 Financina rua
    9130L76       613175         9/30/76              61301_5       9/3076       6/3075
                                 .(in         thousands)




$   859,603   $   987,551    $     670,862        $    815,588     $1,570,985   $1,725,817
      2.352         2.680               7L733             8.467        17.550       13.725
    861,955       990,231          678,595              824,055     1,588,535    1,739,542
      6,603         7,086            5,053                8,471        10,270       11,815

    336,435       312,864          416,755              289,666       864,989      728,991
          2             1                6                    6         4.536            1
$12a995       $L1        2   $'d.^00.409          $i.L22.198
                                                           on                   $$16




$   655,000   $   770,000    $1,025,000           $1,025,000       $2,378,255   $2,378,255
     11.793         8.609           13.538               21.713        31.931       47.317
  666,793         778,609        1,038,538            1,046,713     2,410,186    2,425,572
        9              14                3                     5            2            6
  538.193         531.559           61.868               75.480        58.142       54771
$sla m              $~       $$131019             $$A                  §        $&,AA




                                         27
APPENDIX I

                                  SCHEDULE 2


                                    UNAUDITED

                    GOVERNMENT NATIONAL MORTGAGE ASSOCIATION

        TRUSTEE FOR GOVERNMENT OBLIGATIONS PARTICIPATION SALES TRUSTS

                       Statement of Income and Expense
      For the Fiscal Years Ended September 30, 1976 and June 30, 1975


                                                        Combinead Tr-nts
                                                      9/301/76        6/30/75
                                                           (in thousands)


 Interest earned on obligations

     Subject to trust - net of
     allowance for servicing expense              $ 173,589       $ 154,849
 Investment income                                  124140           80.569
     Total income                                 $ 297729        $ 235.418

 Expense

 Interest on participation
     certificates                                 $ 295,612       $ 241,419
 Administration                                          270            253
     Total expense                                $ 295.882       $ 241,672

 Net income or (loss)   from operations           $     1,847     $    (6,254)
 Interest contributions by trustors                   51,482          38,694
 Interest retained by trustors                        (54,479)        (29,595)
 Net allocation to trustors                       $   (1     )    $      845


The notes on p.      32 are an integral part of this schedule.




                                      28
                                                                       APPENDIX I




    Government Mottgage              Federal Assets                  Federal Assets
     Liauidation Trust             Liquidation Trust                 Financina Trust
    9/3076       6130/75          9/30/76         6/3075            9~30/76    6/30/75
                                   (in thousands)




$    54,287    $   48,881     $    35,345     $       32,762    $   83,957     S    73,206
     24-968        19.378          30.684             16.864        68.488          44.327
$    79255     $   68,252     $    66.029     $       49.626    $ 152,445      $ 117533




$   44,276     $   40,282     $   66,375     $        53,100    $ 184,961          148,037
        96             82             60          _       58           114             113
$    44372     $   40.364     $   66'.435    $        53.158    $ 185.075      $ 148.150

$    34,883    $   27,895     $      (406)   $        (3,532)   $ (32,630) $ (30,617)
       -0-            -0-           8,685              7,607        42,797          31,087
    (49,935)       (24,967)        (3,632)              (966)          (912)        (3,662)

$   £S 052)    $      928     $    4.647     $         3.109    $    9255      $ .      2)




                                      29
APPENDIX I

                              SCHEDULE 3


                                  UNAUDITED

                 GOVERNMENT NATIONAL MORTGAGE ASSOCIATION

      TRUSTEE FOR GOVEiRNMENT OBLIGATIONS PARTICIPATION SALES TRUSTS

                Statement of Changes in Financial Position
      For the Fiscal Years Ended September 30, 1976 and June 30, 1975


                                                           Comblnad Trusts
                                                         9/a0/76      6/30/75
                                                         _(in thousands)

Funds Provided

Income from operations                               $ 297,729      $ 235,418
Obligations subject to trust:
    Principal deposits                                   427,506        340,562
    Accrued interest receivable                           (4,542)         6,398
Collections due from trustors                              5,446         (2,611)
Additional interest contributed
    by trustors                                           (2,997)         9,099
Increase or (decrease) in cash                            (4-536)            15

    Total funds provided                             $ 718606       $




Expense of operations                                $ 295,882      $ 241,672
Retirement of participation certificates               115,000        110,000
Accrued interest payable                                20,377          1,377
Investments acquired                                   284,879        224,756
Additional principal retained by trustors                2,458         11,072
Miscellaneous accounts payable                              10              4

    Total funds applied                              $              $




The notes on p.    32 are an integral         part   of this     schedule.




                                    30
                                                                      APPENDIX I




    Government Moregage            Federal Assets                 Federal Assets
     Liauidat'on Truat            Lisuidatian Truat               Finaneing Truat
    9/30/76        6/0/735         gLazA1         1QLin7      9/13/76           6/30/75
                                  (in thousands


$    79,255    $    68,259    $    66,029    $     49,626   $ 152,445       $ 117,533
    127,949        108,586        144,726          99,197     154,831           132,779
        328            281             733          1,164      (5,603)            4,953
        482         (7,086)         3,419           2,724       1,545             1,751
    (49,935)       (24,967)         5,052           6,641         41,886         27,425
          0             14                                        (4.536)             X
$158.79        $     5.08     $ 219959       $159.352       $34068          $    L4.442



$    44,372    $    40,364    $    66,435    $     53,158   $ 185,075       $ 148,150
    115,000        110,000
     (3,183)         1,377          8,175                      15,385
     23,570         (6,839)       127,089         103,398     134,220           128,197
    (21,685)           181         18,258           2,796       5,885             8,095
          S              4i             2                           3
$5.09          $    5.087     $       $159.352              $30     561     $    4442




                                       31
APPENDIX I                                            APPENDIX I




          NOTES TO THE TRUST'S FINANCIAL STATEMENTS
NOTE 1:
PARTICIPATION CERTIFICATES (sch. 1)
     The participation certificates of $2.4 billion in the
Federal Assets Financing Trust do not include $85 million
held by the trust as Treasury certificates. The certifi-
cates were purchased by the trust and are subject to reissue.

NOTE 2:
CONTINGENT LIABILITY AS GUARANTOR
OF TRUST LIABILITIES (sch. 1)

     As trustee, the Association has legal title to all trust
assets. Additionally, by virtue of a separate guaranty in
its regular corporate capacity, the Association is contin-
gently liable for the timely payment of principal and inter-
est due the trust beneficiaries.

     The Congress has authorized appropriations to trustor
Federal agencies to meet trust obligations, as may be neces-
sary. These agencies, having control and administration of
the obligations subject to the trusts, have provided much of
the financial data in schedules 1 through 3 of appendix I.




                            32
APPENDIX II                                          APPENDIX II

                     PRINCIPAL OFFICIALS

               RESPONSIBLE FOR THE ACTIVITIES

                  DISCUSSED IN THIS REPORT

                                              Tenure of office
                                              From           To
          DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

SECRETARY OF HOUSING AND
  URBAN DEVELOPMENT:
    Patricia R. Harris                 Jan.     1977    Present
    Carla A. Hills                     Mar.     1975    Jan. 1977
ASSISTANT SECRETARY FOR HOUSING
  (FHA COMMISSIONER):
    Lawrence B. Simons                 Mar.     1977    Present
    John T. Howley (acting)            Dec.     1976    Jan. 1977
    James L. Young                     June     1976    Dec. 1976
    David S. Cook                      Sept.    1975    June 1976
    David M. DeWilde (acting)          Dec.     1974    Sept. 1975
GOVERNMENT NATIONAL MORTGAGE
  ASSOCIATION:
    PRESIDENT:
        John H. Dalton
          (designated)
        David M. DeWilde               Apr.     1976    Present
        Daniel P. Kearney              July     1974    Mar. 1976
    EXECUTIVE VICE PRESIDENT:
        Vacant                         Apr.     1976    Present
        Richard C. Dyas                Apr.     1970    Apr. 1976
    SECRETARY-TREASURER:
        Vilmer N. Nelson (Assistant
          Secretary-Treasurer)         Nov.     1976    Present
        Albert J. Fulner, Jr.          Nov.     1969    Nov. 1976
    CONTROLLER:
        Vacant                         Mar.     1977    Present
        Robert C. Goetz (acting)       Jan.     1977    Feb. 1977
        Raymond J. Seitz               June     1972    Dec. 1976




                               43